170 Year Old Rental

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170 Year Old Rental

David Wolf
Warner Robins, GA · Member since 2009 · 8 posts · 0 votes

Hello Everyone,

I am contemplating putting in an offer for a 170 year old home which has been split into 4 apartments. The main benefit of this house is its location: 1 minute walk to the areas prominent university. In addition it is in the historic district of the town and overall a very nice area. Obviously the main tenant base of this property would be the law students that attend the university.

The main drawback is the properties age. With a property this old it is really difficult to attempt and estimate the number of repairs. While my wife and the Realtor seem to think it would rent as is, I cant help but think it needs updates.

1. 100% hard wood but really needs to be sanded and refinished.

2. OLD Windows. None of them open. I counted 36 windows.

3. Paint over paint over paint add 100.

4. Bathtubs should be torn out and replaced. While they function I am not certain they could be cleaned to my standards.

5. Worst part: The floor in one of the units has a pretty good tilt in one room. The foundation has been renovated in the past but who knows how current the tilt is. Obviously would get a structural eng to take a look during inspection period.

6. The roof looks fairly new but I saw signs of leaks.

Some numbers:

Asking: 95,000 (forclosure, last person paid 250k in 2006)

Rent: $500 - $600 Depending on how nice we make the units we could probably charge more due to the location.

Utilities: Separate except for water.

Estimated Repair: Personally I think it would cost approximately 25K to completely fix the property. Windows would be a huge part of that..

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Nicole A.Pro Member
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
13y

Are you sure you posted the correct pictures because that property is beautiful and doesn't look to need work on the floors or the tub....

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y

    Is it legally zoned for the number of units present now?

    In this historic district, will you have to do renovations with approval of historic commission? That could mean using windows that are costly, because they really want the exterior to stay true to the historic look.

    Those wood floors looked OK by me. The tub in the one bath photo there looks like it would clean up acceptably.

    I worry about laundry in upper levels of houses, especially rentals, because the washers can be the cause of water leaks in so many different ways. Water supply hose leak / rupture, drain hose leak / disconnect from drain pipes, water pump failures, etc.

    The paint build-up - that will need EPA RRP "contractor" almost definitely considering the age.

    I have a 150+ year old rental house. When all systems have been renovated properly (no cutting corners), it doesn't seem to cause any more upkeep than other rentals I have that are younger in age. Of course, only time will tell :)

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  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    13y

    Are you sure you posted the correct pictures because that property is beautiful and doesn't look to need work on the floors or the tub....

    1Reply
  • Chris Masons
    Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
    13y

    I have a 115 year old house that looks similar to your house. It is also a 4 family.

    Over the years I have upgraded almost everything - new windows, new electrical service, seperated an old steam fired boiler to 4 seperate heating units for each apt., new roof ETC...

    Long as the house has "good Bones" which hopefully your SE can see by the basement and or looking at the house in detail and you are getting it for a good price I wouldn't let the age scare me.

    Has the plumbing been upgraded? IE. copper supply lines? Not sure what was used 170 years ago galvanized? I'd assume the electrical has been upgraded when the aparetments were seperated? WHat kind ofo heating plant does it have?

    Lastly, I'd take a look at the sewer system hopefully the sewer lateral has been replaced at least once if not I would get a plumber to camera the line and see it's condition. I'd be curious to see the material used for the sewer lateral as well.

    Older homes IMO. have great character as the pictures appear to show. Just have to pay a bit more detail to the inspection and structural integrity of it and be sure it is solid. Other then that all the other stuff can be fixed upgraded over time.

    good luck,
    Chris

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  • Tom Goans
    Real Estate Investor · Englewood, CO · Member since 2013 · 988 posts · 258 votes
    13y

    Based upon the numbers you provided, this is a bad investment that will probably never be a positive cash flow.

    Secondly, your concerns would be mine. A property that old has many hidden problems. Some already existing, some about to come out of the closet. You know of one major problem, the uneven floor. This may be a huge cost waiting for you.

    I once owned and lived in a home built in 1922. There were always issues coming to light. Even though the electrical and plumbing was upgraded, it required more work. Everything was behind stucco walls - huge costs and a long renovation time.

    There are better risk vs. reward opportunities.

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  • Aaron Montague
    Rental Property Investor · Brookline, MA · Member since 2013 · 1k+ posts · 777 votes
    13y

    Was the rent $500-600 per apartment? If so, this place looks like a goldmine.

    1Reply
  • Chris Masons
    Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
    13y

    Really Tom? I am curious as to why you see it as a poor investment because purely from a numbers standpoint and everything else being equal I would be all over this like white on rice!!! :) 500 per unit on the conservative end with great potential to increase?? all in @ say 130k I can work with this no problem.

    Only big unknown is the yearly taxes and insurance...

    I Also see washer/dryer setups in one of the pics which should give you the ability to charge slightly higher then average rent.

    Is there any garages??? Can you see where this is going?? :)

    regards,
    Chris

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    13y

    170 years really isn't that old ... if the "bones" are good. We have lots of 200+ year old houses around here and, when I worked in the Netherlands years ago, I lived in a "cottage" that was ~350 years old and beautifully maintained with all the modern amenities.

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  • David Wolf
    OP
    Warner Robins, GA · Member since 2009 · 8 posts · 0 votes
    13y

    Everyone,

    Thank you for the replies. Yes, those are the pictures but sometimes pictures can make something look better than reality. Specifically the rent would be $500-$600 per apartment or approximately $2000 total. Overall I estimate each apartment to be about 900 sq ft. The big question is attempting to estimate how much this would cost to repair and then the untold number of hidden problems in a house this age.

    The roof looks to be new but I found signs of water. Who knows how long ago.

    Windows cant be opened. Really should be replaced but at 36 windows...

    The slanted floor in one of the rooms. It looks like the foundation was fixed but it will need to be inspected by a qualified engineer.

    The old hardwood floor looks nice in pictures but really is well old..

    Anyway, so many really unknowns make me nervous about this deal.

    The view is off the top balcony and shows the Law School across the street.

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  • Elizabeth S.
    Real Estate Investor · Fort Wayne, IN · Member since 2013 · 168 posts · 78 votes
    13y
    It sounds like a good opportunity to me. The pictures make it look fine, maybe not perfect but some people don't care. If you put $25,000 in cosmetic work I'm it you'll never be happy because there is no good place to stop.
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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    13y

    @David Wolf

    When we purchase an old building like this we just start chewing away at updating it bit by bit: this summer we had half of a 120 yr old duplex vacant for two months, so we gutted it back to the studs, put 3" of closed cell insulation, EnergyStar windows and doors; moved a few walls around and refinished the floors. Next year we'll tackle the other half if it becomes vacant. 2-3 years down the road, we will replace the exterior cladding and add another 1" of polyisocyanurate hardboard insulation.

    Before we started, this building scored a 42 out of 100 - with 12 air changes per hour - in an energy efficiency audit. When we are finished, we expect it to score over 70 in the follow-on audit and have the number of air changes per hour to be less than 4.

    You could take a strategy of tackling this building one unit at a time, followed by the exterior of the envelope ... it need not all happen at once.

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  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    13y

    I dunno...besides the windows and checking that angled floor, I think your expectations of cosmetic looks are too high. The place looks nice.

    Let's see a picture of a wall that has a million coats of paint on it and painted-over electrical outlets. I know what you mean by that and hate it too, but I haven't seen what looks like that in the pics yet.

    Softlight brand windows are good and not terribly expensive!

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    13y

    @David Wolf

    What's the big ugly stain on the back of the building? ... looks like soot or, perhaps, some form of tree sap/residue?

    Is it fully leased? ... I would think that close to the university campus, it should be easy to keep full. However, as an REO, it is likely empty. The challenge now is it is the wrong time to be looking for "good" tenants as the academic year has already begun.

    What are the local property taxes, water & sewer ... any special levies?

    Rent: $24K / year (potential for 28K/year with a little update)

    Operations: $12K /year (50%)

    NOI: 12K/year

    Debt Service: ~$7500/year ($625/mth)

    Residual: ~$4500/year (375/mth) Not quite $100/door

    At a purchase price of 250K, the building doesn't cash flow - which probably explains why the Bank now owns it.

    I have a poor track record with REOs here at home, and have no idea how they behave 2500 miles south of here. Here you would be looking at a full-price offer. How many days has the building been on the market?

    If I new the area a little better, I'd be tempted to submit my own bid :)

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  • Bill B.Pro Member
    Camarillo, CA · Member since 2013 · 217 posts · 86 votes
    13y

    @Roy N.

    If you mean the dark mark on the left side of the exterior shot, I believe that is a fireplace on a different property. But, I'm in CA and just guessing!!! This is a great post with a lot of ideas for due diligence with old properties. Thanks to all.

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    13y

    @Bill B.

    I mean the two "taches" on the left and right sides here:

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  • Bill B.Pro Member
    Camarillo, CA · Member since 2013 · 217 posts · 86 votes
    13y

    @Roy N.

    I just double checked. That picture was not/is not visible to me in the prior posts for some reason. Your post was the first I saw of it. Sorry for the inconvenience.

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  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    @Roy N. yeah I hadn't seen that shot before. Was it up prior, or did you see it somewhere else?

    Not really a big deal either way I was just curious because I didn't remember a exterior rear shot before.

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  • David Wolf
    OP
    Warner Robins, GA · Member since 2009 · 8 posts · 0 votes
    13y

    The stain on the back is cooking grease. It appears that a previous tenant decided to dump it out the window. I would expect it to come off fairly easy with a pressure wash bath and some soap.

    Currently the house is completely empty but was rented as of a few months ago according to the neighbors. Apparently the tenants did not want to leave. Your right about the school year already started. However, I think this would also appeal to the young single professional crowd in the area.

    I have purchased a few REO's in the area and on each I offered less than 75% of asking. This specific property has only been on the market for a week and I really dont expect it to last long. While I was viewing the property another investor was also looking at it. Unfortunately if purchased at the asking price it does not leave that much room for repairs and still be able to cashflow.

    Taxes: The millage rate was 39.9980 last year after sales tax deductions. Expect the taxes to be about $1500 after the property value adjustment.

    Btw, good detective work!

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  • Chris Masons
    Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
    13y

    This would be a great property to get a few partners to go in on say 3 to 4 max all kick in funds to buy it outright so ther eis no debt service on it so you aren't as againt the wall to get it rented and cashflowing....

    IF this is a REO I Am sure it will take a bit to get it up to rental standards but from what I see and read looks to be a diamond in the ruff.....

    ANy figures on yearly taxes and insurnace?

    Chris

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  • Brian Chastain
    Commercial Real Estate Agent · Dayton, OH · Member since 2013 · 6 posts · 2 votes
    13y

    @David Wolf

    Based on @Roy N. numbers, which I think are reasonable, this investment would amount to a Return on Investment (ROI) of only 3.75% annually. One consideration left out would be an estimate of vacancy, even between renters, which would reduce that figure. It is a beautiful place, with what seems to be a decent location, but there is little room for error/unexpected expense on this one.

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  • Chris Masons
    Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
    13y

    BRian and Roy, are you basing your numbers on a purchase price of 250k or 95k (current bank asking price)

    @ 250k I agree not something to jump on, but @ 75- 90k with 25 -30k worth up repairs and maintenance and figure 525 a month each unit it's a real winner in my book ESP. with taxes @ 1500 a year.

    IF he can raise capital to buy it outright adn self manage your operating costs will be very low giving you a nice cashflow...

    am I missing something here?

    thx,
    Chris

    1Reply
  • Ryan R.
    Real Estate Investor · Central, TX · Member since 2012 · 479 posts · 165 votes
    13y

    This is great deal for the right investor. If you're not comfortable with the repairs and how to manage them, which ones need to be performed, and how much you should spend on them, then this might not be a good deal for you.

    What are the comps like in the area? Do the comps support the repairs/updates that you feel are necessary? What are you basing the rents on?

    A structural engineer to look at the foundation? He's going to tell you that the foundation is under-performing and has probably failed in the area that concerns you, then draw up plans to properly repair it. His plans to repair it will be probably be overkill and cost $25,000.

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  • Chris Masons
    Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
    13y

    If the numbers were accurate and location is good this property won't last...

    My first property was a 4 family investment and was single handidly the best thing I could have done at that point in time. I Was so on teh fence and worried about so many aspects but in the end I pulled the trigger.

    I would hate to see him lose out of a good deal based on fear.

    Not downplaying due diligence here either, as there is much needed to be done here that connot be done over a forum.

    IF this property was in NJ I would be all over it :)

    good luck and keep us informed..

    C

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    13y
    Originally posted by Brian Chastain:
    @David Wolf

    Based on @Roy N. numbers, which I think are reasonable, this investment would amount to a Return on Investment (ROI) of only 3.75% annually. One consideration left out would be an estimate of vacancy, even between renters, which would reduce that figure. It is a beautiful place, with what seems to be a decent location, but there is little room for error/unexpected expense on this one.

    Brian:

    3.75%?

    NOI = 12000

    Purchase Price = 95000

    CAP = 12.6%

    My quick analysis with the assumption of 55% operating expenses still shows you can make it into a 10 CAP ... Now, if you could get it for 75-80K and put 25K into it up front, you will still manage a ~12% cash-on-cash return.

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  • Nancy H.
    Investor · Concord, NH · Member since 2013 · 13 posts · 2 votes
    13y

    I just closed on my first MF, a 5-unit that is 150 years old. All mechanicals have been recently updated. Structure is solid as a tank. Still, I would not have bought it without first having a thorough building inspection. The roof looked fine. Wasn't. It's a massive building with a huge roof surface. $30-40k to replace the roof. Had to negotiate the P&S price down to account for that (which I did).

    Other thoughts:

    • The tubs probably don't need to be replaced. You can get them resurfaced. And keep in mind that many people who will rent in this building do so specifically because they like retained original features. Generally more on the architectural features than something like a tub, but something to keep in mind. All of my tenants (inherited) told me they love the building's character. Point is, you may not need to replace; could do less expensively by resurfacing.
    • I think your estimate of $25k rehab is low. Not sure what part of the country you are in or the building is in, but my building has 6,500 sf, almost all hardwood. I am refinishing a vacant unit and got three estimates ranging from $2,200 to $4,800 to refinish 1,000 sf--for one unit, not all. So the floors alone can eat up a huge chunk. Those prices are full refinish, not buff and coat, which runs about half. Depending on floor condition, you may be able to get away with a buff and coat. You may not.
    • On your rents, assuming that is per unit. Again, regional differences. My units rent for $1,195 to $1,495, but I'm in the Northeast in a city with super low vacancy rates, so depending on where you are, your mileage may vary. But I'm wondering if, with some smart cosmetic improvements, you couldn't get higher rents. My building is also in one of the best neighborhoods in the city, and there are few units that are as large and as nice as those in the building I bought.
    • Finally, aesthetic improvements aside...you need a decent reserve to cover inevitable surprises that will, again inevitably, cost more than you think. I would not have bought this building if I didn't have a sizable reserve after closing.
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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    13y
    Originally posted by Chris Masons:

    BRian and Roy, are you basing your numbers on a purchase price of 250k or 95k (current bank asking price) @ 250k I agree not something to jump on, but @ 75- 90k with 25 -30k worth up repairs and maintenance and figure 525 a month each unit it's a real winner in my book ESP. with taxes @ 1500 a year.

    IF he can raise capital to buy it outright adn self manage your operating costs will be very low giving you a nice cashflow...

    am I missing something here?

    thx, Chris

    Chris:

    I fed an acquisition price of 95K into the machine.

    I also made the following assumptions in the model:

    Rent schedule: $500/unit = 2000/month = 24000/year

    Vacancy: 8.33% (1 month in 12)

    => Gross Revenue: 1833/month (22000/year)

    Opportunity cost of capital: 8%

    CapEx & Maintenance: 10%

    PM: 7%

    Property Tax: 2000 {David has indicated 1500)

    Total Operating expenses: 50% of Gross (916/month, 10995/year)

    Down Payment: 20%

    Mortgage: 6.5% 15-year

    Debt Service: $658/mth (7900/year)

    CFBT: ~3K

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